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Inflation causes things to cost more, and for our money to buy less (hence your grandparents saying "In my day, you could buy a cup of coffee for a nickel"). Suppose inflation decreases the value of money by 5% each year. In other words, if you have $1 this year, next year it will only buy you $0.95 worth of stuff. How much will $100 buy you in 20 years?
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- You plan to retire in 30 years and want to accumulate enough by then to provide yourself with $30,000 a year for 15 years.a. If the interest rate is 10%, how much must you accumulate by the time you retire? How much must you save each year until retirement in order to finance your retirement consumption?b. Now you remember that the annual inflation rate is 4%. If a loaf of bread costs $1 today, what will it cost by the time you retire?c. You really want to consume $30,000 a year in real dollars during retirement and wish to save an equal real amount each year until then. What is the real amount of savings that you need to accumulate by the time you retire?d. Calculate the required preretirement real annual savings necessary to meet your consumption goals.e. What is the nominal value of the amount you need to save during the first year? (Assume thesavings are put aside at the end of each year.) What is the nominal value of the amount you need to save during the 30th year?1.) Starting with $15,000, how much will you have in 10 years if you can earn 6 percent on your money? 2.) If you can earn only 4 percent? If the average new home costs $275,000 today, how much will it cost in 10 years if the price increases by 5 percent each year? 3.) If you can earn 4 percent, how much will you have to save each year if you want to retire in 35 years with $1 million?You have $100 to invest for 1 year at a rate of 10%. Bread sells for $2 today and that means you can buy 50 loaves today. Bread is expected to have a 4% inflation next year. what is your real rate of return? How many loaves of bread can you buy next year?
- Li is amazed that he will be able to accumulate over $600,000. However, he knows that inflation will increase his cost of living significantly in 30 years. He assumes 3% inflation and wants to find the income he needs at age 67 to have the same purchasing power as $40,000 today. (Hint: Look at inflation in Section 10.2 and use the compound interest table in Section 10.1.How much do you need to save each year for 30 years in order to have $775,000, assuming you are investing the money in an account that earns 8%? How much of the $750,000 comes from principal (you’re out of pocket costs)?Shelly Franks is planning for her retirement, so she is setting up a payout annuity with her bank. She is now 35 years old, and she will retire when she is 65. She wants to receive annual payouts for twenty years, and she wants those payouts to receive an annual COLA of 4%. a. She wants her first payout to have the same purchasing power as does $15,000 today. How big should that payout be if she assumes inflation of 4% per year? b. How much money must she deposit when she is 65 if her money earns 8.3% interest per year? c. How large a monthly payment must she make if she saves for her payout annuity with an ordinary annuity? (The two annuities pay the same interest rate.) d. How large a monthly payment would she make if she waits until she is 40 before starting her ordinary annuity?
- Suppose you have $100,000 cash today and you can invest it to become a millionaire in 15 years. What is the present purchasing power equivalent of this $1,200,000 when the average inflation rate over the first seven years is 7% per year, and over the last eight years it will be 8% per year? Please solve this problem using excel spreadsheet.Assume that you want to retire 30 years from now with an amount of money that will have the same value (purchasing power) as $3 million today. If you believe the inflation rate will average 4.8% per year, determine the amount of future dollars you will need. The amount of future dollars you will need is $ . (Enter your answer in dollars and not in millions of dollars.)Suppose the inflation rate is predicted to be 2.4% this year. If it cost a family $6800 for groceries last year, what will it likely cost them this year?
- Suppose you know that based on the current economic settings, you can purchase 11% more goods next year if you leave your money in the bank. If the expected inflation rate next year is 4%, what is the exact interest rate your bank is quoting you?If money is worth more than 0% per year to you, would you rather pay $10,000 per year for five years or pay $5,000 per year for 10 years?Using the formula: Oshri is planning on his retirement, so he is setting up a payout annuity with his bank. He is now 30 years old, and he will retire when he's 60. He wants to receive annual payouts for 25 years, and he wants those payouts to receive an annual COLA of 3.5%. A. He wants his first payout to have the same purchasing power as does $13,000 today. How big should that payout be if he assumes inflation of 3.5% per year?
